Learn how investing your money can secure your future.
Why should you worry about investing your money when your neighborhood bank is a nice, secure location for your money? The answer lies in two words - inflation and taxesIf your savings, after taxes, do not increase faster than the inflation rate, its purchasing power will steadily erode. Let's put it another way, you have to find a way for your money to make you still more money. If you don't find a way to put your money to work effectively, you'll never be able to reach financial independence. In short, after you pay your bills and take care of an emergency savings fund, you need to become an investor.
Let's use an example (Keep in mind the following account doesn't even account for the take of taxes):
Take a moment and think about your grandmother. If she had stashed $95 under her mattress 50 years ago, (the price of a decent-quality, three-piece bedroom set in 1945) that money today would buy little more than a set of sheets. What if she had invested that $90 in a bank savings account that kept even with inflation? She could still afford that roomful of furniture. But now consider what would have happened if she had put her 95 bucks in the stock market. It would have grown to more than $25,000 today! 25,000 dollars! That's enough not only for that bedroom set, but it will also cover a down payment on a second home to put it in.
If that story doesn't impress you, here's a scarier one: Investing your money wisely can mean the difference between retiring to a nice house in a good neighborhood or retiring to a nursing home. Saving, while extremely important, is essentially just putting money away for safekeeping. Investing, by contrast, is using your money to generate more money.
Perhaps you think that investing your money in the stock market requires a lot of cash? It doesn't. Here's why: There are many equity mutual funds that accept initial investments as low as $500 or even $250. There are more than 140 mutual fund families that let you begin with $100 or less. And just as important, most funds also let you invest with as little as $50 or $100 a month. If you want to, you can also see what it's like to be a stock investor by purchasing a single share of a company for, say, $40.
If you have never invested in your life, you're not alone. There are millions of Americans who don't own any stocks or mutual funds. Why is that? Well, some of them have probably decided that they don't know enough to invest intelligently. Others think that investing is too scary and worry about the odds that they'll lose money. Still others think that investing in stocks and mutual funds is no different than gambling at the craps tables.
The reality is, it isn't difficult to learn prudent ways to invest. Investing your money in stocks or stock funds really doesn't have to be scary. And by diversifying your investments, you can protect yourself from losing money. As for the craps analogy, it's flat out wrong. Here’s why. To win at dice you have to be lucky. It is strictly a game of chance. That is not the same as investing your money. Winning as an investor means taking the time to learn what you need to know so you can have a more secure future.
As Benjamin Franklin expressed over 200 years ago, "Diligence is the mother of good luck." It’s true. And you can take that to the bank.
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